This case [B.C. Court of Appeal, September 25, 2014] addresses
(1) the "know your client" (KYC) standard in the context
of KYC forms, (2) off-setting investment gains to reduce losses in
damage quantification and (3) contributory negligence of a
vulnerable (geriatric) client, all in the context of the market
crash of 2008.
This was a civil claim for investment losses brought by an
elderly (around age 80 at the relevant time) and long-retired
former investment professional. The investment program in issue
involved a complex options strategy that was very successful until
it fell victim to the market crash of 2008. Prior to the crash the
client had earned over $90,000 from the strategy, but in 2008, lost
over $300,000. The evidence was that the client signed KYC forms
indicating that he had income and substantial assets, whereas he
had neither (he was retired and was trying to claw his way back to
financial health after past losses).
Key Findings on Key Issues
What is the KYC standard when dealing with KYC
forms? The KYC forms were found to be inaccurate and
incapable of reliance by the advisors. The court held that
"the information-gathering process [must] go well beyond
merely accepting at face value information on account opening
forms...[an advisor cannot] merely conform to the information
recorded on an account opening form." Here, there were
obvious inconsistencies on the face of the forms. As well, the
advisors' evidence of probing the client was "too
thin." Therefore, in order to properly complete the KYC
form and process, an advisor must probe the client on any
information that may not make sense, and keep a record of having
When can investment gains offset losses regarding
unsuitable investments? When transactions and trades are
linked and "part of a systemic approach...over
time," then gains can be used to offset losses, and
reduce the damages to be paid to an aggrieved investor. The court
found this to be such a case, where various options contracts were
interrelated and often rolled over pursuant to the pre-determined
investment strategy. The court distinguished this case from
Zraik (Ontario C.A., 2001), in which losses were not
offset against gains because the transactions (trades) in that case
were individual and distinct.
Can a vulnerable client be contributory
negligent? Yes. In all cases where contributory negligence
is argued, the trial judge must consider whether an investor
plaintiff, "did not in his own interest take reasonable
care of himself and contributed, by his want of care, to his own
injury." The court held that determining contributory
negligence does not depend on a duty owed by the injured party to
the party sued, but depends instead on the plaintiff's
"blameworthiness...the degree of the risk created by each
of the parties." The failing health, advanced age and
financial instability of the plaintiff gave rise to both the
finding of defendants' liability (80%) and the finding of the
plaintiff's own liability (20%) for knowingly participating in
the options strategy, despite knowledge of his personal
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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Under the Income Tax Act, the Employment Insurance Act, and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions or GST.
Under the Income Tax Act, the Employment Insurance Act, the Canada Pension Plan Act and the Excise Tax Act, a director of a corporation is jointly and severally liable for a corporation's failure to deduct and remit source deductions.
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